- Oops!Something went wrong.Please try again later.
For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
In contrast to all that, many investors prefer to focus on companies like Cleveland-Cliffs (NYSE:CLF), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Cleveland-Cliffs with the means to add long-term value to shareholders.
How Quickly Is Cleveland-Cliffs Increasing Earnings Per Share?
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. It certainly is nice to see that Cleveland-Cliffs has managed to grow EPS by 26% per year over three years. If growth like this continues on into the future, then shareholders will have plenty to smile about.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Cleveland-Cliffs shareholders can take confidence from the fact that EBIT margins are up from 12% to 21%, and revenue is growing. Ticking those two boxes is a good sign of growth, in our book.
In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Cleveland-Cliffs' forecast profits?
Are Cleveland-Cliffs Insiders Aligned With All Shareholders?
Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. Of course, we can never be sure what insiders are thinking, we can only judge their actions.
We do note that, in the last year, insiders sold US$1.1m worth of shares. But that's far less than the US$2.1m insiders spent purchasing stock. This bodes well for Cleveland-Cliffs as it highlights the fact that those who are important to the company having a lot of faith in its future. We also note that it was the Chairman, C. Goncalves, who made the biggest single acquisition, paying US$988k for shares at about US$19.77 each.
Along with the insider buying, another encouraging sign for Cleveland-Cliffs is that insiders, as a group, have a considerable shareholding. Notably, they have an enviable stake in the company, worth US$135m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!
Is Cleveland-Cliffs Worth Keeping An Eye On?
You can't deny that Cleveland-Cliffs has grown its earnings per share at a very impressive rate. That's attractive. On top of that, insiders own a significant stake in the company and have been buying more shares. These things considered, this is one stock worth watching. It's still necessary to consider the ever-present spectre of investment risk. We've identified 4 warning signs with Cleveland-Cliffs (at least 1 which is a bit unpleasant) , and understanding them should be part of your investment process.
There are plenty of other companies that have insiders buying up shares. So if you like the sound of Cleveland-Cliffs, you'll probably love this free list of growing companies that insiders are buying.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here